2016 Ohio 4864
Ohio Ct. App.2016Background
- In Oct. 2010 Carey (and his LLC) leased commercial premises from Down River to operate a nightclub or adult cabaret; Carey paid $200,000 down. The lease included purchase options but otherwise was a commercial lease.
- Before signing, Carey asked if Down River had a certificate of occupancy (CO); Tritola (principal of Down River) said the prior tenant destroyed the CO and that the use was "grandfathered," so Carey could operate without a CO.
- Tritola later sought a CO from the city; he had difficulty and procured a court mandamus; the city eventually issued a CO after ~2.5 years.
- Carey operated a nightclub for about 2.5 years, was never cited by authorities for lack of a CO, but the business failed; Down River temporarily halved rent, Carey still defaulted, vacated, and returned keys.
- Carey sued for breach of contract, breach of warranty, fraud, and sought rescission and damages (~$705,000). The trial court (bench trial) found no fraud and entered judgment for Down River on all claims and on Down River’s counterclaim for damages. Carey appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did Down River breach the lease by failing to provide a CO, excusing Carey’s performance? | Carey: CO was a material term; failure to deliver it breached the lease, justifying rescission or suspension of performance. | Down River: No lease provision required delivery/obtaining of a CO; possession and permitted use were delivered; CO was not a contractual condition. | Held for Down River — no contractual obligation to deliver a CO; no breach. |
| Was Carey entitled to rescission/damages because the alleged failure to provide a CO was failure of consideration? | Carey: Lack of CO frustrated bargained-for use and was failure of consideration. | Down River: Use was an "established/grandfathered" use; plaintiffs could investigate; representations were not false. | Held for Down River — rescission denied; no fraud proven. |
| Were extrinsic statements (about CO) admissible to vary the written lease? | Carey: Oral assurances about CO/ability to operate showed promise/warranty. | Down River: Parol evidence barred; written lease controls and is unambiguous as to permitted uses and specific obligations. | Held for Down River — parol evidence not available to create an obligation absent ambiguity; lease unambiguous. |
| Did Carey prove damages or lost profits from the alleged breach? | Carey: Claimed lost profits and recovery of down payment and rents. | Down River: Lost-profit claim speculative; no proof that lack of CO caused shutdown or citations; Carey operated for 2.5 years. | Held for Down River — damages speculative; plaintiff failed to prove compensable loss. |
Key Cases Cited
- Stone v. Davis, 66 Ohio St.2d 74 (trial court may give a general judgment where record provides adequate basis)
- Kelly v. Medical Life Insurance Co., 31 Ohio St.3d 130 (intent of contracting parties is found in the language they chose)
- Shifrin v. Forest City Enterprises, Inc., 64 Ohio St.3d 635 (courts will not rewrite clear contracts to add unexpressed terms)
- Galmish v. Cicchini, 90 Ohio St.3d 22 (parol evidence rule prevents varying a final written integration absent fraud/mistake)
- Ed Schory & Sons, Inc. v. Francis, 75 Ohio St.3d 433 (parol evidence is a substantive contract rule protecting written agreements)
- Bellman v. American International Group, 113 Ohio St.3d 323 (extrinsic evidence considered only where contract language is ambiguous)
- Layman v. Binns, 35 Ohio St.3d 176 (caveat emptor in commercial real estate; buyer must investigate property absent concealment)
- Powell v. Grant Medical Center, 148 Ohio App.3d 1 (elements of breach of contract claim)
- Cleveland-Akron-Canton Advertising Coop. v. Physician’s Weight Loss Ctrs. of Am., 184 Ohio App.3d 805 (contract interpretation is a question of law reviewed de novo)